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    The cost of the Central Bank’s new policy (2)
    Fatih Özatay, PhD 18 October 2012
    The share of FX liabilities in the Central Bank’s total debt rose from 44 to 67 percent. On Tuesday, I addressed the positive aspects of the Central Bank’s (CB) new policy that allowed banks to keep a certain proportion of reserve requirements on lira deposits in FX. Today let me talk about the downsides of the policy. [More]
    The cost of the Central Bank’s new policy (1)
    Fatih Özatay, PhD 16 October 2012
    Banks are now allowed to keep a certain proportion of required reserves for lira deposits in FX. Quite a while ago the Central Bank (CB) introduced a new monetary policy tool. The tool has two pillars: first, banks are now allowed to keep a certain proportion of required reserves in FX. This proportion was zero, but after the new policy it was raised to 10 percent as of 12 September 2011. [More]
    Has the income gap narrowed down?
    Fatih Özatay, PhD 13 October 2012
    Since 1960, GDP per capita gap between G7 countries and Turkey has not changed much. As you might remember, in one of last week’s commentaries, I criticized a figure used in recent remarks of Central Bank officials. The figure compared per capita income in Turkey to those in South Korea in the US. Without repeating the criticisms I raised, I will try to make a more proper comparison as I did several times before on this column. Apart from my criticisms for the Central Bank’s comparisons, I want to update the figure for two reasons. First, it is a vitally important comparison an second, I believe it will be useful for new readers (on the assumption that I have new readers, of course). [More]
    There still is a positive development despite all the negative ones
    Fatih Özatay, PhD 11 October 2012
    So, now it is a greater probability that in the third quarter, growth rate might be weaker than the 2.9 percent in the second quarter. Last week I promised to write on the Central Bank’s required reserve ratio policy. But I want to postpone this discussion as important figures related to growth rate were announced meanwhile. On Tuesday, industrial output figures for August were released: industrial output diminished year-on-year by 1.5 percent. Year-on-year industrial output growth excluding monthly fluctuations had assumed a downwards starting in January 2011. As a result, annual output growth rates became insignificant lately. In August, industrial output decreased for the first time after a long period. [More]
    Forced steps at the wrong time
    Fatih Özatay, PhD 09 October 2012
    The combination of the first three in particular is a new phenomenon for Turkey. New and critical… Over the past two years, Turkey made economic policy mistakes. First one was about fiscal policy: in the second half of 2010 and the first half of 2011, current account deficit that reached record-high levels constituted the main concern. In addition, the FX requirement resulting from the current account deficit was predominantly met by short term external borrowing. With these circumstances and record-high growth rates, fiscal policy was not tightened. Tax revenues picked up with the help of rapid growth, but budget expenditures also rose equally. If the rise in expenditures could have been limited, rapid growth would have decreased relatively along with a fall in current account deficit fro [More]
    Medium-term or infinite-term?
    Fatih Özatay, PhD 06 October 2012
    The core problem is that, that “medium-term” somehow turns into “infinite-term.” There is no need to put yourself in the line of fire. God forbid all my beloved ones and all the good people that I am not acquainted with from becoming the target. I am trying to come up with an epigram like “It’s better to have a target than to become the target.” But I know it is not full of meaning and it can easily be read into something else. There is no doubt that it is better to have a target. Yet, if you have only short-term targets, you can still be criticized for being short-sighted. I want to ask who isn’t, but anyways… If you have long-term targets only, on the other hand, the famous saying of Lord Maynard Keynes, may he rest in peace, comes to mind: “in the long run, we are all dead.” As the sequ [More]
    Is this a game?
    Fatih Özatay, PhD 04 October 2012
    Is it possible that bureaucrats from the Ministry of Finance and the Treasury did not inform the CB of the plans? Yesterday, inflation figures were announced. In short, consumer price inflation rose slightly while headline inflation (that excludes goods prices of which were raised recently) decreased. Given the factors I mentioned during my previous commentary, the Central Bank (CB) might lower the upper limit of the interest rate corridor more. [More]
    Price raises and the Central Bank
    Fatih Özatay, PhD 02 October 2012
    I think, the CB will keep the average funding cost close to the policy interest rate unless exchange rate changes unfavorably. First, tax on selected goods and services and later fuel and diesel oil prices were raised. Yesterday, electricity and natural gas prices were increased by 10 percent. I addressed these developments in the context of stability and growth during Saturday’s commentary. Today, I want to evaluate these from the monetary policy perspective. [More]
    Why the fall in exports calls up the fiscal rule?
    Fatih Özatay, PhD 29 September 2012
    With a focus on the “moment” these all are right steps towards stability. From a dynamic perspective, however, these are proved wrong. There were two factors that triggered the decrease in growth rate. First, in June 2011, the Banking Supervision and Regulation Agency (BRSA) took effective steps to slowdown the credit growth. The second factor related to the problems across Europe:  with uncertainty about the future of Europe escalating, risk appetite headed down. Banking and corporate sectors faced difficulty in borrowing from abroad. Coupled with the weakening of risk appetite, domestic credit demand decreased. In addition, sluggish growth in Europe affected Turkey’s export performance negatively. Please note that only the first factor is connected to the “gearing down” in fashionable ja [More]
    The CB’s hands are clean
    Fatih Özatay, PhD 27 September 2012
    It seems we will be searching who did wrong as we are keenly interested in identifying wrongdoings and wrongdoers. With the economic growth in the first quarter slipping to 3.1 percent, some circles blamed it on the Central Bank (CB). But, there is no wrongdoing in this case. Even if there was, the CB was not who did wrong. [More]